Comments:"Only 200 Startups Per Year End Up Mattering & Most of them Aren't in Tech | BostInno"
The thing that separates "startups" from small businesses, as Paul Graham has explained, is growth. Oddly enough, quite a lot of those growth companies don't fit the VC profile. Investor and Kauffman fellow Paul Kedrosky has looked at this before, but in a paper released earlier this week he brings even better data to the table.
Kedrosky set out to measure the high growth "gazelles" that play a disproportionate role in economic growth and job creation, defined in this case as firms that reached $100 million in revenue in a matter of years.* What he found is fascinating.
200 or So Startups Founded Per Year End Up "Mattering"
And most of them aren't IT - 'Consumer discretionary' and 'Industrials' are the two biggest categories
And the U.S. region with the most of them is the Southeast
Yes, the American Southeast, the powerhouse of economic growth, apparently. At least by this measure.
Why VC's focus on tech, energy, and healthcare despite this data is an interesting puzzle. To some extent, I'm guessing VC's are backing lots of these consumer and industrial companies, but Kedrosky's previous work (based on Inc. 500 lists) suggests that they're only behind about 16 percent of the fastest growing companies.
Why so low? Perhaps it's even harder to identify winners in those industries? I'd be interested in thoughts on that in the comments.
One more bit of data from this study for Boston folks: when Kedrosky looked at the incidence of high growth IT firms by state, taking into account GDP and other factors, Massachusetts came out ahead. In other words, it was the state that had more than would be expected based on its population and economy:
The second half of the paper looks directly at growth IT startups, and not surprisingly a handful of states account for most of the action: California, Florida, Illinois, Massachusetts, New York, North Carolina, and Texas. But of the 20 growth IT firms that end up "mattering" - hitting $100 million in revenues quickly - only four on average are from California. So, for all the talk of Silicon Valley leaving everyone in its dust, the rest of the country collectively produces five times as many startups that matter.
*I'm unclear on how many years Kedrosky considers a "reasonable timeframe." If it's in the paper, I missed it.
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